MNI INSIGHT: ECOFIN Impetus Grows On DigiTax Fix, Ireland A No

--10 Countries Sign Proposal For Digital Revenue Tax

--France Hopes To Quash Dissent For Unanimity

By Tara Oakes

     BRUSSELS (MNI) - How do you solve a problem like Google? European Union

finance ministers on Saturday were divided on what big member states are

claiming is a landmark solution to the problem of getting digital giants to

cough up their tax dues.

     A total of 10 countries have now signed a letter proposing a tax on revenue

for big online companies, taking aim at Google, Apple, Facebook and the like who

rake in cash from European users but whose online business model is not subject

to common international tax laws.

     French Finance Minister Bruno Le Maire is keen to take credit for the

suggestion, initially put forward by France, Spain, Italy and Germany. The rate

is still up in the air but Austria, Bulgaria, Portugal, Romania, Slovenia and

Greece have co-signed the statement saying the time has come for the EU to move

"quickly" ahead on an "equalization tax".

     The push has worked: the European Commission are set to release a

communique before the upcoming Tallinn digital summit on September 29 outlining

what issues are at stake.

     The EU would then hope to put together a common position at December's

formal ECOFIN meeting ahead of the OECD meeting next year, in the hope of

presenting a united European front to spearhead digital taxation efforts on the

global stage.

     Draft legislation from the EU has been tentatively pegged for before the

end of 2018, MNI understands.

     DISSENT

     Acceptance of the turnover tax is far from universal. Rumblings of dissent

range from purely anti-tax to concerns that an EU approach fails to take into

account the need for a truly global solution.

     Even where they have set up physical entities, digital giants have done so

where they can take advantage of lower corporate tax rates in certain member

states. 

     Ireland enthusiastically welcomed Google, Apple and others with a 12.5%

corporation tax and according to sources were the most vocally opposed during

the ECOFIN informal meeting. Cyprus and Malta are also unenthusiastic.

     Other countries were concerned that a localised approach shouldn't be the

priority ahead of the OECD's global efforts such as BEPS (Base Erosion and

Profit Shifting) to tackle tax avoidance.

     MNI understands from a source in the room that British Chancellor Philip

Hammond launched a strong warning that a "short term solution is not favourable

to a long-term solution".

     "We shouldn't give the U.S. a pretext to pull out of the OECD process,"

Hammond reportedly said. The vast majority of digital giants to be hit by the

tax are American.

     Luxembourg also was hesitant to throw its weight behind the revenue

proposal ahead of OECD efforts. Finance Minister Pierre Gramegna complimented

the OECD's work on BEPS when entering the meeting, meriting a friendly shout of

"He's absolutely right!" from OECD Head Gurria who was passing by.

     Le Maire admitted on the sidelines of the meeting that it would be

"horribly complicated", adding that he would hold discussions on the suggestion

with Ireland himself.

     "I understand the difficulties of Ireland, who have founded their entire

economic model on a low corporate tax base," the French minister said. But, he

added, the meeting was "very constructive" and with "discussion, discussion,

discussion" he was hopeful of pan-EU agreement.

     "We won't let Europe be kicked around," he said.

     QUICK FIX

     Estonian Finance Minister Toomas Toniste said that "over half" of countries

saw the need to move fast on a "quick fix" solution, even if they didn't sign up

to the French-fronted idea.

     Poland, Hungary and "like-minded' countries approve of the proposal but are

more hesitant about the letter's backing of an EU Common Consolidated Corporate

Tax Base (CCCTB) as an ultimate goal, so have not signed.

     No member state is pretending this is a long-term solution. Estonia

themselves have proposed a "virtual permanent establishment" for web giants to

be taxed on in countries where they have a significant presence. 

     Estonia's Deputy Secretary General for Tax and Customs, Dmitri Jegorov,

said at the beginning of the informal ECOFIN session that risks remained in the

"quick fix", including the possibility of double taxation.

     But asked by MNI, Jegorov said he welcomed France's push and denied that

the French proposal derails their longer-term EU digitax ambitions.

     "It's like putting a more powerful engine in the same car," Jegorov said.

     Quick fixes are needed because tax proposals in the EU are a slow process.

     Currently, EU tax decisions require unanimity. But European Commission

President Jean-Claude Juncker said in his State of the Union address Wednesday

that he was in favour of switching to qualified majority voting. The change

would help stop tax ideas like the much-delayed Financial Transaction Tax (FTT)

from stagnating -- popular with those keen for the EU harness more funds, but

anathema for countries like Ireland who could they face having such proposals

forced upon them.

     Without unanimity under the present system, Europe could face a patchwork

of national solutions -- rendering the Old Continent a "horrible place to do

digital business", Jegorov said.

--MNI Brussels Bureau; +44 203-865-3851; email: tara.oakes@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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